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Gold Miners Break Out

  • Precious metal and mining stocks catching a bid after a dismal 2021

  • Geopolitical risks helped spark a breakout on the yellow metal

  • Light investor positioning and reasonable valuations make a compelling case to own gold miners in the near term

Precious metals have caught a bid this year. After a disappointing 2021 that featured higher than expected inflation and extremely low real yields, gold and silver prices could not find traction. To be fair, they performed well in the early months following the stock market lows in March 2020.

A Look Back on Returns

Precious metal mining companies – namely the gold miners – are often a volatile niche of the global equity market. After skyrocketing from the depths of the pandemic to the third quarter of 2020, investors in the major minors were left with lousy returns. Then, as US stock surged from March 2020 through the end of last year, mining companies were left in the dust.

New Year, New Trends

So here we are in 2022. The investing environment feels much different. Value stocks are outperforming, ex-US markets have easily beaten the S&P 500, emerging markets are oddly a source of safety (at least so far this year according to price action), and gold stocks are shining. Moreover, metal & mining companies and resource-dependent regions, like Latin America, are loving the last two months.

The Case for Gold Mining Stocks

We find several reasons for strength in the miners. Technicals have improved, ETF positioning is historically light, valuations are not bad, and the overall macro backdrop is favorable.

You cannot analyze precious metal mining firms without checking on the happening with gold itself. We see a breakout. This comes after building momentum among FX currencies, rising ETF inflows and a tick-up in sentiment. You can read more about our stance on gold in our Weekly Macro Themes report.

Rising Real Yields? No Problem.

What’s intriguing about the latest gold price thrust is that it comes as real yields have jumped – that often has bearish implications for the yellow metal. It’s different this time due to the major Russia/Ukraine geopolitical risks.

The Way to Play It

Obviously, bullish action on gold is great for miners of the metal. The popular way to play gold miners is to own the GDX ETF. While not a recommendation, you can get your exposure with liquidity there.


Digging a bit further, we find that the NYSE Arca Gold Miners index once again bounced off support near the 800 level. The move comes with strong breadth – the percent of gold mining stocks above their 200dma has reached its highest level since early 2021.

Better price action amid solid breadth comes as investors are still lightly invested in this space (compared to history). Our featured chart below illustrates that people do not own much of this compared to the 2010-2012 heyday. But even versus late 2020, allocation to gold miners is incredibly low.

Featured Chart: Low Investor Positioning to Gold Miners

chart of gold mining stock ETF investor allocations

What About Valuations?

The valuation outlook is also encouraging. The miners trade at a discount to the S&P 500, and absolute valuations are not expensive.

Bottom Line: We remain bullish on gold miners, especially on a relative basis given improved technicals, light positioning, reasonable valuations and the bullish picture in precious metals.

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